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Exam 18: Corporate Taxation: Nonliquidating Distributions

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Question 1

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Abbot Corporation reported a net operating loss of $400,000 in 20X3,which the corporation elected to carry forward to 20X4.Included in the computation of the taxable loss was regular depreciation of $100,000 (E&P depreciation is $40,000) ,first-year expensing under §179 of $50,000,and a dividends received deduction of $10,000.The corporation's current E&P for 20X3 would be:

A) ($330,000) .
B) ($290,000) .
C) ($400,000) .
D) ($490,000) .

E) B) and C)
F) B) and D)

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Question 2

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Panda Company is owned equally by Min,her husband,Bin,her sister Xiao,and her grandson,Han,each of whom hold 100 shares in the company.Under the family attribution rules,how many shares of Panda stock is Min deemed to own?

A) 100.
B) 200.
C) 300.
D) 400.

E) B) and C)
F) All of the above

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C

Question 3

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Which statement best describes the concept of the "double taxation" of corporation income?

Townsend Corporation declared a 1-for-1 stock split to all common stock shareholders of record on December 31,20X3.Townsend reported current E&P of $400,000 and accumulated E&P of $1,000,000.The total fair market value of the stock distributed was $500,000.Regina Williams owned 1,000 shares of Townsend common stock,with a tax basis of $200 per share ($200,000 total).The fair market value of the common stock was $300 per share on December 31,20X3.What is Regina's income tax basis per share in the new and existing common stock she owns in Townsend,assuming the distribution is tax-free?

The "double taxation" of corporate income refers to the taxation of corporate income at both the entity level and the shareholder level.

Pine Creek Company is owned equally by Bob and his sister Samantha,each of whom own 1,000 shares in the company.On December 31,20X3,Pine Creek redeemed 200 of Samantha's shares for $5,000,000 in a transaction treated as an exchange by Samantha.Pine Creek has current E&P of $10,000,000 and accumulated E&P of $30,000,000 (computed without regard to the stock redemption).Assuming Pine Creek did not make any dividend distributions during 20X3,by what amount does the company reduce its E&P because of the redemption?

Oakland Corporation reported a net operating loss of $500,000 in 20X3 and elected to carry the loss forward to 20X4.Not included in the computation was a disallowed meals and entertainment expense of $20,000,tax-exempt income of $10,000,and deferred gain on a current-year transaction treated as an installment sale of $250,000.The corporation's current E&P for 20X3 would be:

Longhorn Company reports current E&P of $100,000 in 20X3 and a deficit of ($200,000) in accumulated E&P at the beginning of the year.Longhorn distributed $300,000 to its sole shareholder on January 1,20X3.The shareholder's tax basis in his stock in Longhorn is $100,000.How is the distribution treated by the shareholder in 20X3?

Comet Company is owned equally by Pat and his sister Pam,each of whom hold 100 shares in the company.Comet redeems 50 of Pam's shares on December 31,20X3,for $1,000 per share in a transaction that Pam treats as an exchange for tax purposes.Comet has total E&P of $160,000 on December 31,20X3.What are the tax consequences to Comet because of the stock redemption?

Lansing Company is owned equally by Jennifer,her husband,Dan,and DeWitt Corporation,which is owned 50 percent by Jennifer and her sister Jane.Each of the three shareholders holds 100 shares in the company.Under the §318 stock attribution rules,how many shares of Lansing stock is DeWitt Corporation deemed to own?

Which of the following statements best describes current E&P?

Montclair Corporation had current and accumulated E&P of $500,000 at December 31,20X3.On December 31,the company made a distribution of land to its sole shareholder,Molly Pitcher.The land's fair market value was $200,000 and its tax and E&P basis to Montclair was $50,000.Molly assumed a liability of $25,000 attached to the land.The tax consequences of the distribution to Montclair in 20X3 would be:

Comet Company is owned equally by Pat and his sister Pam,each of whom hold 100 shares in the company.Comet redeems 50 of Pam's shares on December 31,20X3,for $1,000 per share in a transaction that Pam treats as an exchange for tax purposes.Comet has total E&P of $250,000 on December 31,20X3.What are the tax consequences to Comet because of the stock redemption?

Which of the following statements best describes the role of current and accumulated E&P in determining if a distribution is a dividend?

Grand River Corporation reported taxable income of $500,000 in 20X3 and paid federal income taxes of $170,000.Not included in the computation was a disallowed meals and entertainment expense of $2,000,tax-exempt income of $1,000,and deferred gain on a current-year transaction treated as an installment sale of $25,000.The corporation's current E&P for 20X3 would be:

Sherburne Corporation reported current E&P for 20X3 of $500,000.During the year,the company made a distribution of land to its sole shareholder,Ted Bozeman.The land's fair market value was $150,000 and its tax and E&P basis to Sherburne was $100,000.Ted assumed a mortgage attached to the land of $25,000.What amount of dividend income does Ted report because of the distribution,and what is Ted's income tax basis in the land received from Sherburne?

Tiger Corporation,a privately held company,has one class of voting common stock,of which 1,000 shares are issued and outstanding.The shares are owned as follows: How many shares of stock is Mark deemed to own under the family attribution rules in a stock redemption?

The recipient of a taxable stock distribution will have a tax basis in the stock equal to the fair market value of the stock received.

Ozark Corporation reported taxable income of $500,000 from operations for 20X3.During the year,the company made a distribution of land to its sole shareholder,Marcus Twain.The land's fair market value was $100,000 and its tax and E&P basis to Ozark was $125,000.Marcus assumed a mortgage attached to the land of $25,000.Ozark's tax rate is 21 percent.The company had accumulated E&P of $850,000 at the beginning of the year.Compute Ozark's total taxable income and federal income tax paid because of the distribution.Using your solution,compute Ozark's accumulated E&P at January 1,20X4.

The recipient of a tax-free stock distribution will have a zero tax basis in the stock.